SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
------ SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 25, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - ------- SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-14941
CAMBRIDGE ADVANTAGED
PROPERTIES II LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 13-3330195
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)421-5333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
<PAGE>
PART I
Item 1. Financial Statements
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND
SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
========== ==========
June 25, March 25,
1998 1998
---- ----
<S> <C> <C>
ASSETS
Property and equipment - net of
accumulated depreciation of
$44,451,765 and $43,665,440
respectively $70,100,653 $70,875,621
Cash and cash equivalents 843,935 1,011,604
Cash - restricted for tenants'
security deposits 634,657 563,247
Mortgage escrow deposits 2,081,172 1,815,521
Deferred costs, net of accumulated
amortization of $1,032,190 and
$983,592, respectively 2,124,146 2,142,743
Prepaid expenses and other assets 454,163 432,170
---------- ----------
Total assets $76,238,726 $76,840,906
========== ==========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage notes payable $90,984,951 $91,209,333
Accounts payable, accrued
expenses and other liabilities 6,628,943 6,179,587
Tenants' security deposits payable 634,657 563,247
Due to general partners of
subsidiaries and their affiliates 1,396,896 1,631,151
Due to general partners and
affiliates 4,841,370 4,660,761
------------ ------------
Total liabilities 104,486,817 104,244,079
----------- -----------
Minority interest 4,881,320 4,911,145
------------ ------------
Commitments and contingencies
(Note 3)
Partners' deficit:
Limited partners (32,480,570) (31,673,628)
General partners (648,841) (640,690)
------------- -------------
Total partners' deficit (33,129,411) (32,314,318)
----------- -----------
Total liabilities and partners'
deficit $76,238,726 $76,840,906
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND
SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
==================
Three Months Ended
June 25,
----------------
1998 1997*
---- -----
<S> <C> <C>
REVENUES
Rentals, net $4,039,565 $4,269,647
Other 154,854 189,190
---------- ----------
Total revenues 4,194,419 4,458,837
--------- ---------
EXPENSES
Administrative and management 734,117 685,565
Administrative and management-
related parties (Note 2) 366,535 423,369
Operating 318,445 354,005
Repairs and maintenance 540,282 524,837
Taxes and insurance 476,389 505,843
Interest 1,750,646 1,867,562
Depreciation and amortization 834,923 872,130
---------- ----------
Total expenses 5,021,337 5,233,311
--------- ---------
Loss before minority interest (826,918) (774,474)
Minority interest in loss of
subsidiaries 11,825 11,152
---------- ----------
Net loss $ (815,093) $ (763,322)
========= =========
</TABLE>
*Reclassified for comparative purposes.
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND
SUBSIDIARIES
Consolidated Statement of Changes in Partners' Deficit
(Unaudited)
<TABLE>
<CAPTION>
========================================
Limited General
Total Partners Partners
----- -------- --------
<S> <C> <C> <C>
Balance-
March 26, 1998 $(32,314,318) $(31,673,628) $(640,690)
Net loss - three
months ended
June 25, 1998 (815,093) (806,942) (8,151)
------------ ----------- ----------
Balance-
June 25, 1998 $(33,129,411) $(32,480,570) $(648,841)
=========== =========== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND
SUBSIDIARIES
Consolidated Statements of Cash Flows
(Decrease) Increase in Cash and Cash Equivalents
(Unaudited)
<TABLE>
<CAPTION>
====================
Three Months Ended
June 25,
------------------
1998 1997*
---- -----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(815,093) $(763,322)
-------- --------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 834,923 872,130
Minority interest in loss of
subsidiaries (11,825) (11,152)
Increase in cash-restricted
for tenants' security deposits (71,410) (10,083)
Increase in mortgage
escrow deposits (265,651) (76,575)
Increase in prepaid
expenses and other assets (21,993) (70,279)
Increase in accounts payable,
accrued expenses and other
liabilities 449,356 356,497
Increase in tenants'
security deposits payable 71,410 10,083
Decrease in due to general partners
of subsidiaries and their affiliates (234,255) (143,641)
Increase in due to general partners
and affiliates 180,609 157,686
--------- ----------
Total adjustments 931,164 1,084,666
--------- ---------
Net cash provided by operating
activities 116,071 321,344
--------- ----------
</TABLE>
*Reclassified for comparative purposes.
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND
SUBSIDIARIES
Consolidated Statements of Cash Flows
(Decrease) Increase in Cash and Cash Equivalents
(continued)
(Unaudited)
<TABLE>
<CAPTION>
====================
Three Months Ended
June 25,
-----------
1998 1997*
----------- -----------
<S> <C> <C>
Net cash provided by operating
activities brought forward 116,071 321,344
----------- -----------
Cash flows from investing activities:
Acquisitions of property and
equipment (11,357) 0
----------- -----------
Net cash used in investing activities (11,357) 0
----------- -----------
Cash flows from financing activities:
Principal payments of mortgage
notes payable (224,382) (192,849)
Decrease in capitalization
of consolidated subsidiaries
attributable to minority interest (18,000) (58,945)
(Increase) decrease in deferred costs (30,001) 8,567
----------- -----------
Net cash used in financing
activities (272,383) (243,227)
----------- -----------
Net (decrease) increase in cash and
cash equivalents (167,669) 78,117
Cash and cash equivalents-
beginning of period 1,011,604 1,225,369
----------- -----------
Cash and cash equivalents-
end of period $ 843,935 $ 1,303,486
=========== ===========
</TABLE>
*Reclassified for comparative purposes.
See Accompanying Notes to Consolidated Financial Statements.
6
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
June 25, 1998
(Unaudited)
Note 1 - General
The consolidated financial statements for the three months ended June 25, 1998
and 1997 include the accounts of Cambridge Advantaged Properties II Limited
Partnership, (the "Partnership"), and ten and eleven subsidiary partnerships
("subsidiaries", "subsidiary partnerships" or "Local Partnerships"),
respectively. The Partnership is a limited partner, with an ownership interest
of 98% in each of the subsidiary partnerships. Through the rights of the
Partnership and/or a General Partner, which General Partner has a contractual
obligation to act on behalf of the Partnership, to remove the general partner of
the subsidiary partnerships and to approve certain major operating and financial
decisions, the Partnership has a controlling financial interest in the
subsidiary local partnerships.
For financial reporting purposes, the Partnership's fiscal quarter ends June 25.
The Partnership's fiscal quarter ends June 25 in order to allow adequate time
for the subsidiaries' financial statements to be prepared and consolidated. The
books and records of the Partnership are maintained on the accrual basis of
accounting, in accordance with generally accepted accounting principles
("GAAP"). All subsidiaries have fiscal quarters ending March 31. Accounts of
subsidiaries have been adjusted for intercompany transactions from April 1
through June 25.
All intercompany accounts and transactions have been eliminated in
consolidation.
Increases (decreases) in the capitalization of consolidated subsidiaries
attributable to minority interest arise from cash contributions and cash
distributions to the minority interest partners.
The Partnership's investment in each subsidiary is equal to the respective
subsidiary's partners' equity less minority interest capital, if any. Losses
attributable to minority interests which exceed the minority interests'
investment in a subsidiary have been charged to the Partnership. Such losses
aggregated approximately $500 and $200 for the three months ended June 25, 1998
and 1997, respectively. In consolidation, all subsidiary partnership losses are
7
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
June 25, 1998
(Unaudited)
included in the Partnership's capital account except for losses allocated to
minority interest capital.
The unaudited financial statements have been prepared on the same basis as the
audited financial statements included in the Partnership's Form 10-K for the
year ended March 25, 1998. In the opinion of the general partners, the
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the financial
position of the Partnership as of June 25, 1998 and the results of operations
and cash flows for the three months ended June 25, 1998 and 1997, respectively.
However, the operating results for the three months ended June 25, 1998 may not
be indicative of the results for the year.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Partnership's March 25, 1998 Annual Report on Form 10-K.
As of June 25, 1998, several subsidiary partnerships are experiencing financial
difficulties. There is doubt about the ability of some of the subsidiary
partnerships to continue as going concerns. Recoverability of a significant
portion of the Partnership's investments will depend upon material improvements
in the ability of each subsidiary partnership to meet its debt service
obligations. In addition, the level of cash distributions provided to the
Partnership by the subsidiary partnerships have not been sufficient, and may not
be sufficient in the future, to cover the Partnership's operating expenses. As a
result, the Partnership has required, and may in the future require, funding
from other sources for such purposes. The consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties. See Note 3 and the Partnership's March 25, 1998 Annual Report on
Form 10-K for management's intentions.
8
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
June 25, 1998
(Unaudited)
Note 2 - Related Party Transactions
One of the general partners of the Partnership, Related and Cambridge Associates
Limited Partnership ("Related and Cambridge Associates"), has a 1% interest as a
special limited partner in each of the subsidiary partnerships.
Whitney Management Corp., an affiliate of the Related General Partner, is the
managing agent of four properties. On November 12, 1997, the property and the
related assets and liabilities of Galveston-Stewarts Landing, Ltd., one of the
properties, was sold.
Fees incurred to related parties for the three months ended June 25, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
====================
Three Months Ended
June 25,
---------------
1998 1997
---- ----
<S> <C> <C>
Partnership management fees (a) $161,000 $191,250
Expense reimbursement (b) 16,000 31,036
Property management fees (c) 186,535 198,083
Local administrative fee (d) 3,000 3,000
-------- --------
$366,535 $423,369
======== ========
</TABLE>
(a) After all other expenses of the Partnership are paid, an annual partnership
management fee of up to .5% of invested assets is payable to the Partnership's
general partners and affiliates. Partnership management fees have been charged
to operations and are included in administrative and management-related parties
expenses. Partnership management fees owed to the general partners amounting to
approximately $2,038,000 and $1,877,000 were accrued and unpaid as of June 25,
1998 and March 25, 1998, respectively.
(b) An affiliate of the Related General Partner performs services for the
Partnership which include, but are not limited to: accounting and financing
management, registrar, transfer and assignment functions, asset management,
investor communications, printing and other administrative services. The amount
of reim-
9
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
June 25, 1998
(Unaudited)
bursement from the Partnership is limited by the provisions of the Partnership
Agreement. Another affiliate of the Related General Partner performs asset
monitoring for the Partnership. These services include site visits and
evaluations of the subsidiary partnerships' performance. Expense reimbursements
and asset monitoring fees owed to the Related General Partner amounting to
approximately $553,000 and $537,000 were accrued and unpaid as of June 25, 1998
and March 25, 1998, respectively.
(c) Property management fees paid by subsidiary partnerships amounted to
$198,198 and $209,797 for the three months ended June 25, 1998 and 1997,
respectively. Of these fees $92,516 and $106,399 were incurred to affiliates of
the subsidiary partnerships. In addition, $128,514 and $140,261 were incurred to
affiliates of the Related General Partner for the three months ended June 25,
1998 and 1997. Of such amounts incurred to affiliates of the Related General
Partner, $34,495 and $48,577 are also included in amounts incurred to affiliates
of the subsidiary partners because they were incurred to affiliates of both.
(d) Related and Cambridge Associates, a limited partner of the subsidiary
partnerships, is entitled to receive a local administrative fee of up to $2,500
per year from each subsidiary partnership.
Note 3 - Commitments and Contingencies
There were no material changes and/or additions to disclosures regarding the
subsidiary partnerships which were included in the Partnership's Annual Report
on Form 10-K for the period ended March 25, 1998.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Partnership's primary sources of funds are the cash distributions from
operations of the Local Partnerships in which the Partnership has invested.
These sources are available to meet obligations of the Partnership. However, the
cash distributions received from the Local Partnerships to date have not been
sufficient to meet all such obligations of the Partnership. During the three
months ended June 25, 1998 and 1997 such distributions amounted to approximately
$178,000 and $150,000, respectively. Accordingly, the Related General Partner
advanced funds to meet the Partnership's third party obligations with remaining
unpaid balances due to the Related General Partner totaling approximately
$2,344,000 and $2,060,000 at June 25, 1998 and March 25, 1998, respectively. In
addition, certain fees and expense reimbursements owed to the General Partners
amounting to approximately $2,591,000 and $2,414,000 were accrued and unpaid as
of June 25, 1998 and March 25, 1998, respectively. Without the General Partners'
advances and continued accrual without payment of certain fees and expense
reimbursements, the Partnership will not be in a position to meet its
obligations. The General Partners have continued advancing and allowing the
accrual without payment of these amounts, but are under no obligation to do so.
During the three months ended June 25, 1998, cash and cash equivalents of the
Partnership and its ten consolidated Local Partnerships decreased approximately
$168,000. This decrease was attributable to acquisitions of property and
equipment ($11,000), a decrease in capitalization of consolidated subsidiaries
attributable to minority interest ($18,000), an increase in deferred costs
($30,000) and principal payments of mortgage notes payable ($224,000) which
exceeded cash flow provided by operating activities ($116,000). Included in the
adjustments to reconcile the net loss to cash flow provided by operating
activities is depreciation and amortization ($835,000).
For a discussion of contingencies affecting certain Local Partnerships, see Note
3 to the Financial Statements.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed, that will or are likely to impact
liquidity in a material way. Management believes the only impact would be from
laws that have not
11
<PAGE>
yet been adopted. The portfolio is diversified by the location of the properties
around the United States so that if one area of the country is experiencing
downturns in the economy, the remaining properties in the portfolio may be
experiencing upswings. However, the geographic diversification of the portfolio
may not protect against a general downturn in the national economy.
Results of Operations
Excluding Galveston, which sold its property on November 12, 1997,
administrative and management-related and repairs and maintenance, the results
of operations of the Partnership, as well as the Local Partnerships remained
fairly consistent during the three months ended June 25, 1998 and 1997. The
majority of Local Partnership income continues to be in the form of rental
income with the corresponding expenses being divided among operations,
depreciation and mortgage interest.
Rental income decreased approximately 5% for the three months ended June 25,
1998 as compared to the corresponding period in 1997. Excluding Galveston,
rental income increased approximately 1% for the three months ended June 25,
1998, as compared to the corresponding periods in 1997 primarily due to rental
rate increases.
Other income decreased approximately $34,000 for the three months ended June 25,
1998 as compared to the corresponding period in 1997. Excluding Galveston, such
income decreased approximately $26,000 primarily due to lower occupancy levels
at one Local Partnership as a result of three new apartment complexes being
built in the area, as well as write-offs of uncollectible rents at two other
Local Partnerships.
Total expenses excluding Galveston, administrative and management-related
parties and repairs and maintenance expense remained fairly consistent with an
increase of less than 1% for the three months ended June 25, 1998 as compared to
1997.
Administrative and management-related parties decreased approximately $57,000
for the three months ended June 25, 1998 as compared to the corresponding period
in 1997 primarily due to a decrease in partnership management fees and expense
reimbursements payable to the General Partners.
Repairs and maintenance increased approximately $15,000 for the three months
ended June 25, 1998 as compared to the corre-
12
<PAGE>
sponding period in 1997. Excluding Galveston, such expenses increased
approximately $50,000 primarily due to carpet replacement, installation of new
locks and painting at one Local Partnership.
Operating expense decreased approximately $36,000 for the three months ended
June 25, 1998 as compared to the corresponding period in 1997. Excluding
Galveston, such expenses remained fairly consistent with a decrease of
approximately $10,000.
Year 2000 Compliance
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The General Partners are in the process of working with the
Partnership's service providers to prepare for the year 2000. Based on
information currently available, the Partnership does not expect that it will
incur significant operating expenses or be required to incur material costs to
be year 2000 compliant.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The litigation described in Note 3 to the financial statements contained
in Part I, Item 1 is incorporated herein by reference.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAMBRIDGE ADVANTAGED
PROPERTIES II LIMITED PARTNERSHIP
(Registrant)
By: RELATED ADVANTAGED RESIDENTIAL
ASSOCIATES, INC., a General Partner
Date: August 3, 1998
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Senior Vice President
(principal financial officer)
Date: August 3, 1998
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
By: RELATED AND CAMBRIDGE ASSOCIATES,
LIMITED PARTNERSHIP,
a General Partner
By: Related Advantaged Residential
Associates, Inc.,
its General Partner
Date: August 3, 1998
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Senior Vice President
(principal financial officer)
Date: August 3, 1998
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> The Schedule contains summary
financial information extracted
from the financial statements for
Cambridge Advantaged Properties II
L.P. and is qualified in its
entirety by reference to such
financial statements
</LEGEND>
<CIK> 0000771996
<NAME> Cambridge Advantaged Properties II LP
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-25-1999
<PERIOD-START> MAR-26-1998
<PERIOD-END> JUN-25-1998
<CASH> 843,935
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,169,992
<PP&E> 114,552,418
<DEPRECIATION> 44,451,765
<TOTAL-ASSETS> 76,238,726
<CURRENT-LIABILITIES> 13,501,366
<BONDS> 90,984,951
0
0
<COMMON> 0
<OTHER-SE> (28,248,091)
<TOTAL-LIABILITY-AND-EQUITY> 76,238,726
<SALES> 0
<TOTAL-REVENUES> 4,194,419
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,270,691
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,750,646
<INCOME-PRETAX> (826,918)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (826,918)
<EPS-PRIMARY> (113)
<EPS-DILUTED> 0
</TABLE>
